Abstract The author of this article is of the views that he has tested his teaching by teaching students what "incremental costing" really means. Several people have asked him why the assumptions of his article on "Transfer Prices: An Exercise in Relevancy and Goal Congruence" included an assumption that none of the computer jobs involved cost-plus or renegotiable contracts. It has come to his attention that many university computer centers perform some government work on a cost-plus basis, mixed with much university sponsored research work. And he has found that their managerial accounting is wrong and wrong in a way that harms the university, the government, and the computer company from which the computer is rented. So this seems reason enough to him to pursue the topic of incremental costs through an elaboration of his previous analysis to include the cost-plus assumption. The author proposes to test the effect of a cost-plus contract in the resulting purified abstract analysis. To simplify the arithmetic a trifle, he will alter his assumptions as to hours and costs a trifle.
Billy E. Goetz (Tue,) studied this question.